On Appeal from the United States Tax Court (Tax Court Docket Nos. 7603-80, 7604-80)
Before: GARTH, BECKER, ROSENN, Circuit Judges.
This appeal from a judgment of the United States Tax Court raises a number of questions concerning use by the Internal Revenue Service of information obtained from grand jury materials by means of a Fed. R. Crim. P. 6(e) order that would now be invalid under the Supreme Court's decision in United States v. Baggot, 463 U.S. 476, 103 S. Ct. 3164, 77 L. Ed. 2d 785 (1983). This information forms the basis for statutory notices of tax deficiency that were challenged by appellants Thomas A. Graham ("Graham") and Meridian Engineering, Inc. ("Meridian") in proceedings before the Tax Court.
In Gluck v. United States, 771 F.2d 750 consolidated with this case for disposition and decided today, we held that IRS summonses issued on the basis of information obtained by means of similar Rule 6(e) order are enforceable because the IRS agents who obtained the information acted in good faith reliance on that order, which was issued by a United States District Court and was valid on its face. We concluded that, under such circumstances, enforcement of the summonses would not constitute an abuse of the court's process.
Although this case arises out of proceedings to determine deficiencies in the Tax Court, while Gluck involved the enforcement of summonses in the district court, we hold that this difference in procedural posture is inconsequential and that our decision in Gluck dictates the outcome here, whether the IRS agents also acted in good faith reliance on a facially valid Rule 6(e) order. We thus hold that the information obtained by these IRS agents from grant jury materials properly forms the basis of the challenged deficiency notices, and we will affirm the judgment in favor of the IRS for the amounts stated therein.*fn1
In September 1971, a federal grand jury sitting in the Eastern District of Pennsylvania began an investigation into contracts between several commercial vendors and the City of Philadelphia. On October 4, 1971, the United States Attorney filed an ex parte motion in the district court for an order, pursuant to Fed. R. Crim. P. 6(e).*fn2 seeking authorization to disclose to agents of the IRS matters occuring before the grand jury so that the agents could lend their technical assistance to the investigation.*fn3 On the same day, the district court entered an order granting the motion. The order stated, in part:
the United States Attorney and Special Attorneys of the United States Department of Justice are authorized to utilize the assistance of agents, special agents and employees of the Internal Revenue Service in this Grand Jury Investigation, Yand may give access to such persons of books, records, documents and transcripts of testimony before the Grand Jury in this investigation, and the said agents, special agents, and employees shall not be prohibited from utilizing such material in the course of their official duties, for either criminal or civil purposes, provided the the subpoenaed material shall remain at all times under the aegis of attorneys for the government.
On January 15, 1973, the grand jury issued a subpoena directing Meridian to produce all business records relating to its tax liability for calendar or fiscal years ending 1969, 1970, and 1971. Meridian complied with this subpoena by handing over the requested documents. On October 25, 1973, after the original grand jury's term expired, a new federal grand jury was convened in Philadelphia to continue the investigation. Once again the United states Attorney moved for a Rule 6(e) order, and such an order was entered by the district court on November 20, 1973. This Rule 6(e) order, like the earlier one, explicitly stated that the IRS agents lending assistance to the Justice Department investigation could use information obtained from subpoenaed materials for civil matters, so long as these materials remained under the aegis of the attorneys for the government.
On April 4, 1974, Graham, president, chairman of the board, and principal shareholder of Meridian, testified before the grand jury under a grant of immunity. On April 24, he was subpoenaed to produce all his bank account records for the years 1969 through 1973, and his diaries and appointment books for the year 1973. Graham moved in the district court to quash the subpoena or for a protective order prohibiting access to these records for civil use by IRS personnel. The government countered that the appropriate time to challenge civil use of the grand jury materials would be when the materials were put to such use, if ever, and that ...